Medicare Levy vs Medicare Levy Surcharge: What's the Difference?

Medicare Levy vs Medicare Levy Surcharge: What's the Difference?

The Medicare Levy and Medicare Levy Surcharge (MLS) are two different charges that can appear when you lodge an Australian tax return.

Although their names are similar, they work differently.

The Medicare Levy is generally charged at 2% of taxable income for Australian residents who are subject to the full levy.

The Medicare Levy Surcharge is an additional charge that may apply to higher-income earners who do not have an appropriate level of private patient hospital cover.

Understanding the difference is important because you can potentially pay both the Medicare Levy and the Medicare Levy Surcharge.

At AU Finance Tools, we create free calculators and educational resources to help Australians understand tax and personal finance.

Use our Tax Return Calculator to estimate your overall tax position.

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Medicare Levy vs Medicare Levy Surcharge at a Glance

The easiest way to understand the difference is to compare them side by side.

The two charges are separate and should not be confused.

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What Is the Medicare Levy?

The Medicare Levy is a tax that helps fund Australia's public healthcare system.

For most Australian residents for tax purposes who are subject to the full levy, the standard rate is 2% of taxable income.

For example, if your taxable income is $80,000:

$80,000 × 2% = $1,600

Your Medicare Levy would generally be $1,600 if the full levy applies.

However, lower-income taxpayers may qualify for a reduction or may not have to pay the levy at all.

Read our full guide:

Medicare Levy 2% in Australia 2025–26: Who Pays It and How It’s Calculated

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What Is the Medicare Levy Surcharge?

The Medicare Levy Surcharge (MLS) is an additional charge that can apply to higher-income earners who do not have an appropriate level of private patient hospital cover.

The purpose of the MLS is to encourage people with higher incomes to take out private hospital insurance.

Unlike the standard Medicare Levy, the MLS is not automatically charged at 2%.

The MLS rate can be:

• 1%
• 1.25%
• 1.5%

The rate depends on your Medicare Levy Surcharge income.

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Who Has to Pay the Medicare Levy Surcharge?

The MLS may apply if:

1. Your income is above the relevant MLS threshold, and
2. You do not have an appropriate level of private patient hospital cover.

The rules can also depend on your family circumstances and whether you have a spouse or dependent children.

Simply earning a high salary does not automatically mean you will pay the MLS.

Your private hospital insurance status is also important.

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Medicare Levy Surcharge Thresholds for 2025–26

For the 2025–26 financial year, the Medicare Levy Surcharge thresholds for singles are:

These thresholds apply to Medicare Levy Surcharge income, which can be different from your taxable income.

The MLS thresholds are separate from the standard Medicare Levy thresholds.

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What Is Medicare Levy Surcharge Income?

One important difference between the Medicare Levy and MLS is the type of income used for the calculation.

The Medicare Levy is generally based on taxable income.

The Medicare Levy Surcharge uses Medicare Levy Surcharge income.

Depending on your circumstances, MLS income can include more than your taxable income.

It can take into account items such as:

• Taxable income
• Reportable fringe benefits
• Certain investment losses
• Some salary sacrifice amounts
• Other amounts specified under the MLS rules

This means your salary or taxable income alone may not always tell you whether you will pay the MLS.

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Do I Need Private Health Insurance to Avoid the MLS?

Potentially, yes.

If your income is above the relevant MLS threshold, having an appropriate level of private patient hospital cover may allow you to avoid the Medicare Levy Surcharge.

However, not every type of private health insurance is sufficient.

For MLS purposes, the relevant cover is generally private patient hospital cover.

Extras-only insurance, such as dental or optical cover, does not generally provide the hospital cover needed to avoid the MLS.

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Does Private Health Insurance Remove the 2% Medicare Levy?

No.

This is one of the most common misunderstandings.

Having private health insurance does not normally remove the standard Medicare Levy.

The Medicare Levy and Medicare Levy Surcharge are separate.

For example, an eligible taxpayer could have:

Medicare Levy: 2%

Medicare Levy Surcharge: 0%

This could happen when the person is above the relevant income threshold but has appropriate private hospital cover.

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Can You Pay Both the Medicare Levy and MLS?

Yes.

You can potentially pay both charges.

For example, suppose someone is an Australian resident for tax purposes with taxable income of $170,000.

If the person is required to pay the full Medicare Levy:

$170,000 × 2% = $3,400

If they also fall into the highest MLS tier and do not have appropriate private hospital cover, they may also have an MLS liability at the applicable rate.

This means the two charges can apply at the same time.

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Example: $90,000 Income

Suppose you earn $90,000 and are an Australian resident for tax purposes.

Assuming the full Medicare Levy applies:

Medicare Levy:

$90,000 × 2% = $1,800

Because $90,000 is below the 2025–26 single MLS threshold of $101,000, the MLS would generally be:

Medicare Levy Surcharge: $0

So your Medicare-related charges would generally be:

$1,800 Medicare Levy + $0 MLS

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Example: $120,000 Income Without Private Hospital Cover

Suppose your relevant MLS income is $120,000 and you do not have appropriate private patient hospital cover.

You may fall into MLS Tier 2, which has an MLS rate of 1.25% for 2025–26.

The standard Medicare Levy could be:

$120,000 × 2% = $2,400

The MLS calculation could be:

$120,000 × 1.25% = $1,500

This would give:

$2,400 Medicare Levy + $1,500 MLS

for a combined Medicare-related amount of $3,900, assuming the simplified calculation applies to your circumstances.

Actual tax outcomes can differ because the MLS uses Medicare Levy Surcharge income and specific rules.

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Example: $120,000 Income With Appropriate Hospital Cover

Now suppose the same person has appropriate private patient hospital cover for the relevant period.

They may avoid the Medicare Levy Surcharge.

Their Medicare-related charges could therefore be:

Medicare Levy: $2,400

Medicare Levy Surcharge: $0

This example shows why private hospital cover can be relevant for higher-income taxpayers.

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Medicare Levy vs MLS: The Key Difference

The biggest difference is simple:

Medicare Levy = generally a 2% levy on taxable income.

Medicare Levy Surcharge = an additional charge that can apply to higher-income earners without appropriate private hospital cover.

They have different purposes and use different rules.

The Medicare Levy helps fund Medicare.

The MLS is designed to encourage higher-income earners to take out private hospital cover.

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Medicare Levy and MLS Thresholds Are Different

Another common mistake is assuming that the Medicare Levy and MLS use the same income thresholds.

They do not.

For 2025–26, the standard Medicare Levy thresholds for most taxpayers are:

The MLS threshold for a single taxpayer starts at:

$101,000

These thresholds serve completely different purposes.

A person earning $30,000 may need to consider the standard Medicare Levy rules.

A person earning $120,000 may need to consider both the Medicare Levy and the Medicare Levy Surcharge.

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Medicare Levy vs Medicare Levy Surcharge and Tax Refunds

Both charges can affect your final tax position.

Your tax refund is generally based on the difference between the tax already paid or withheld and your final tax liability after taking applicable rules into account.

Your final tax calculation may include:

• Income tax
• Medicare Levy
• Medicare Levy Surcharge
• Tax deductions
• Tax offsets
• HECS-HELP or other study loan repayments
• Other applicable adjustments

For example, if you have an MLS liability that was not fully accounted for during the year, it could reduce your tax refund or increase the amount you need to pay when lodging your return.

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Common Medicare Levy and MLS Mistakes

Thinking the Medicare Levy and MLS Are the Same

They are separate charges.

The Medicare Levy is generally 2% of taxable income for people subject to the full levy.

The MLS is an additional charge based on income and private hospital cover.

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Thinking Private Health Insurance Removes the Medicare Levy

Private hospital insurance can help you avoid the MLS if you meet the relevant requirements.

It does not normally remove the standard Medicare Levy.

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Assuming Extras Cover Is Enough

Extras insurance such as dental, optical or physiotherapy cover is not generally the type of hospital cover required to avoid the MLS.

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Using Salary Instead of MLS Income

Your salary or taxable income may not be the same as your Medicare Levy Surcharge income.

Additional amounts can affect the MLS calculation.

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Assuming Everyone Above $101,000 Pays MLS

Not necessarily.

Your MLS liability depends on your circumstances, including your MLS income and whether you have appropriate private patient hospital cover.

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Forgetting Family Circumstances

The MLS rules can be different for couples and families.

Your spouse's circumstances and dependent children can affect the relevant income threshold and calculation.

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Frequently Asked Questions

Is the Medicare Levy the same as the Medicare Levy Surcharge?

No.

The Medicare Levy is generally a 2% levy on taxable income for Australian residents who are subject to the full levy.

The Medicare Levy Surcharge is a separate additional charge that can apply to higher-income earners without appropriate private hospital cover.

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Is the Medicare Levy Surcharge an extra 2%?

No.

The MLS rates are generally 1%, 1.25% or 1.5%, depending on the relevant income tier.

The MLS is separate from the standard 2% Medicare Levy.

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Do I pay Medicare Levy if I have private health insurance?

Generally, yes.

Private health insurance does not normally remove the standard Medicare Levy.

It may help you avoid the Medicare Levy Surcharge if you meet the relevant requirements.

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How much can the Medicare Levy Surcharge cost?

For 2025–26, the MLS rates range from 1% to 1.5% depending on your income tier.

The actual amount depends on your Medicare Levy Surcharge income and circumstances.

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What income triggers the Medicare Levy Surcharge in 2025–26?

For a single taxpayer, the MLS generally starts when the relevant income exceeds $101,000 for 2025–26.

Different thresholds can apply to families.

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Can I pay both the Medicare Levy and Medicare Levy Surcharge?

Yes.

If you are subject to the standard Medicare Levy and also meet the MLS requirements, you can pay both.

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Does extras-only private health insurance avoid the MLS?

Generally, no.

To avoid the MLS, you generally need an appropriate level of private patient hospital cover rather than extras-only insurance.

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Is MLS based on taxable income?

Not necessarily.

The MLS uses Medicare Levy Surcharge income, which can include amounts in addition to taxable income.

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How the Medicare Levy and MLS Affect Your Tax Return

When preparing your Australian tax return, it is important to consider both charges separately.

Your circumstances may require you to consider:

• Medicare Levy
• Medicare Levy Surcharge
• Taxable income
• MLS income
• Private hospital cover
• Tax deductions
• Tax offsets
• Family circumstances
• Tax residency

Use our Tax Return Calculator to estimate your overall tax position.

For a detailed explanation of the standard 2% Medicare Levy, see:

Medicare Levy 2% in Australia 2025–26: Who Pays It and How It’s Calculated

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Key Takeaways

• The Medicare Levy and Medicare Levy Surcharge are different charges.
• The standard Medicare Levy is generally 2% of taxable income for Australian residents subject to the full levy.
• The Medicare Levy Surcharge can apply to higher-income earners who do not have appropriate private patient hospital cover.
• The MLS rates for 2025–26 are 1%, 1.25% and 1.5%.
• The MLS threshold for a single taxpayer starts at $101,000 for 2025–26.
• You can potentially pay both the Medicare Levy and Medicare Levy Surcharge.
• Private hospital cover can help eligible taxpayers avoid the MLS.
• Extras-only private health insurance is generally not sufficient to avoid the MLS.
• The Medicare Levy is generally based on taxable income, while MLS uses Medicare Levy Surcharge income.
• Both charges can affect your final tax refund or tax payable.

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Information Sources

This guide is based primarily on publicly available Australian Government and Australian Taxation Office information about the Medicare Levy and Medicare Levy Surcharge.

Tax thresholds and rules can change between financial years. Always check the latest information from the Australian Taxation Office when preparing your tax return.

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Disclaimer

This article provides general information only and should not be considered financial, tax, legal or professional advice.

Tax outcomes depend on your individual circumstances. The examples in this article are simplified illustrations and may not reflect your actual tax liability.

Always refer to the Australian Taxation Office (ATO) or a qualified tax professional for advice about your specific circumstances.